Is It Too Early to Declare the Recession Over?
Stimulus-To-Nowhere
By blackhedd Posted in Congress | Economy | Stimulus — Comments (22) / Email this page » / Leave a comment »
The most salient feature of the current economic and financial environment, and what makes it different from much of the past, is uncertainty. Measurements of current activity, investment patterns and credit markets are giving a conflicting picture of the global economy. No one knows for sure whether business will pick up, which makes everyone reluctant to take risk.
As day follows night, the increased uncertainty leads to expectations of lower economic activity. In the everyday world, where reality is whatever journalists say it is on any given day, all of this translates into fears of recession.
If you've been reading me for a while, you know I've been warning of a slowdown since the early days of the credit crisis that exploded in the financial world late last spring. Over the last several days, I've been catching very faint signs that we've turned the corner, and the next direction is up.
For one thing, this means that the budget-busting circle-jerk now taking place in Congress over a Keynesian stimulus package is an epic exercise in futility.
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I'm not talking about the stock market. Individual stock prices reflect the outlook for corporate earnings, but the stock market as a whole reflects (theoretically, at least) the relative risk of owning businesses as opposed to other kinds of investments.
So while headlines scream about collapses in stock-market indexes, it takes a more discerning eye to see what is really going on inside the market. This subject is a post all by itself, but I'm actually going to sidestep it because the more important signals are occurring in the credit markets.
I believe we're seeing the first signs that the global credit crunch is easing. I'm seeing this in LIBOR rates, narrowing spreads for corporate debt, the appearance of buyers in distressed assets like bond insurers, in commodity prices, and several other things.
Since credit unavailability is the surest precursor of recessions (or of economic slowdowns short of recession), this suggests that a key requirement is in place for a return to growth in business activity.
To be quite sure, there are sectors of the US economy that never experienced any noticeable distress at all. If I'm right and we are indeed starting to emerge from the mini-recession we've been in, then it still remains to be seen which sectors will lead the way out.
The Federal Reserve will hopefully cut interest rates again next week, and keep cutting for some time to come. I'm not going to wade into the currently-raging debate over whether Ben Bernanke showed fatal weakness by both his delays to aggressively cut rates, and his sudden turnaround this week. The jury is still on this, and it will be for a long time. In case it didn't sink in the first time: the Fed needs to keep cutting. I would be happy to see the Fed-funds target rate go to 2% or even lower.
As far as the mishugas in Congress over stimulating the economy is concerned, I say again that they needn't bother.
As a businessman, I'm thrilled by the Republican proposals to accelerate depreciation and increase expensing limits for capital goods. But this has little to do with "temporary, fast-acting" economic stimulus. I think these are changes that should be made permanent. I've said any number of times that the government is much of what is putting America's businesses at a disadvantage in a tough, competitive world.
If it takes an ugly recession scare to make voters understand that government is putting America out of business, then that's better than nothing.
In regard to the tax rebate checks: the only value to these will be to the political party that manages to stamp its name on the checks. Yes, short-term political advantage is something that, to our elected officials, is well worth forcing us to borrow an extra $150 billion or more to buy for them. Boy, that makes me mad enough to spit.
As far as the approximate doubling of the limits on "compliant" mortgages is concerned: I can see no impact of this on the fortunes of the construction industry or on home values, both of which have a lot of excess to work off. (A "compliant" mortgage is one that is permitted by law to be funded by Fannie Mae or Freddie Mac.)
About the Democrats' attempts to curry favor with local politicians at all levels by giving them goodies to hand out: we need to fight this tooth and nail. $2 billion for temporary summer jobs?! C'mon, Democrats, your craven hypocrisy is showing again.
And while we're at it, let's force both Republicans and Democrats in the Senate to keep their pig-snouts out of our pockets. No earmarks or superfluous spending in the (superfluous) stimulus package!
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Is It Too Early to Declare the Recession Over? 22 Comments (0 topical, 22 editorial, 0 hidden) Post a comment »
I'm saying that the recession has started, and it's already about to end.
No argument to your point about fiscal responsibility.
...not aimed at you. You hit me on the knee with a little, rubber mallet and I kicked.
:-)
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You'd better get to work persuading and reasoning to make the case for your preferred policy then, shouldn't you?
... say, blackhedd, what's your take on the latest Paul Krugman column? [1] I know you've had fun with this guy in the past.
[1] http://www.nytimes.com/2008/01/25/opinion/25krugman.html?ref=opinion
Hang all traitors and secessionists! Hang them high!
- Me
... specifically the part where he says that high-income workers don't do a lot of discretionary spending and therefore won't spend the rebate checks. I almost laughed.
Obviously, you and he agree that the stimulus package is a big waste (as do I), but I think you have arrived at that conclusion by different routes, no?
Hang all traitors and secessionists! Hang them high!
- Me
That's not to say I have a lot of respect for him. He's a noted expert on foreign trade matters, but that also doesn't mean he reaches the right policy conclusions.
The implicit assumption inside of Krugman's argument in the column that you quoted, is that consumer spending will lead the US economy out of recession. Since he takes that on faith, he goes on to argue over the best ways to increase consumer spending.
His fundamental assumption is wrong. Low consumer spending is not the cause of the recession that I believe we are already in. Poor credit formation is the cause.
Krugman and Congress are attacking the wrong problem. That won't stop them from taking credit for the recovery, which I now believe has just started.
... the next time something like this happens Congress will point to this and say, "Look, a stimulus package can work."
Hang all traitors and secessionists! Hang them high!
- Me
A complete and cogent summary of the economy in three sentances.
The consumer can't spend the economy out of a problem caused by loose credit controls.
Intelligence sometimes hinders solving a problem Krugman is a smart guy, he just doesn't understand how the economy's mechanisms interact - especially human nature.
Likewise, Corzine - N.J.'s Governor, is an intelligent banker, but he assumed that by increasing cigarette taxes by 50%, he would collect an additional $20M per year. After one year, NJ collected $15M less than before the tax increase. Folks changed behavior and bought their cigarettes in Delaware, Indian Reservations, or without a tax stamp from their local bodega (some probably quit).
Liberals often fail to take human nature into account and realize people change behavior, change jobs, and move because of taxes and government intervention.
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"Enlightened statesmen will not always be at the helm." -- James Madison
While Blackhedd may be right that consumer spending is not the problem - and therefor not the solution - to this downturn (I lean that way but will withold judgement until we can analyze what actually happened) it is certainly true that if you want to stimulate consumer spending you are better off putting $100 in the hands of low-income households rather than high-income households. High-income households do spend a lower percentage of their marginal income than low-income households (and for fairly obvious reasons at that). So while it may be amusing, at least on this point, Krugman is not wrong.
...why conservatives should be upset with the giveaway. It's our money wrongly confiscated to begin with. Also, as we FiCons so often note: It's a matter of choice which things we decide are the budget busters. To say that this is what doubles the deficit is inherently misleading. It's just a component of the problem.
Why not just call this a targeted tax cut, then continue to hammer on fiscal restraint and earmark reform?
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We would also like to know your advice for somebody like my daughter, who's going to graduate in two years, advice that you would give a young person.
SEC. RUMSFELD: Advice for a young person. Study history.
There's one reason to oppose this: it's not a real tax rebate, but rather just raw income redistribution. If it were a rebate, then you couldn't get back more than you paid, but people already getting the EITC will be eligible for this.
As crimes or redistribution go, it's fairly minor. At least it has no "roll back the tax cuts for the wealthiest Americans" component.
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We would also like to know your advice for somebody like my daughter, who's going to graduate in two years, advice that you would give a young person.
SEC. RUMSFELD: Advice for a young person. Study history.
It's unnecessary, and it's wrong. The fact that Democrats have tried worse in the past does not mean I'm going to just zip it when they try an unnecessary wrong.
On the other hand, it's Democratic deficit spending. If we can get both Senators Clinton and Obama to vote for it, maybe we'll have an answer when people blame President Bush for busting the budget.
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We would also like to know your advice for somebody like my daughter, who's going to graduate in two years, advice that you would give a young person.
SEC. RUMSFELD: Advice for a young person. Study history.
It's pure redistributive malarkey. People who aren't paying taxes will get the bulk of the money, and those people who pay the most taxes will be excluded from getting it. It's pure class warfare gussied up as protecting the economy.
And I'm personally of the opinion that any nominal Republicans who give aid and comfort to the enemy on this one need to be ridden out of the party on a rail after they have been tarred and feathered.
Is it worth the government populist give aways if we can get some reform of business regulation ?
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Longer answer: depends on if the business reforms are permanent and if we can get a lot more just like them.
A permanent reduction in taxes on business income, and tax rebates on exported goods would be dandy as next steps.
part of what gets us into these messes is that you always wind up supporting the populist give aways (which always get larger) to support small business reforms (which either get smaller or become part of the populist giveaways the way the sugar tariffs have). Bush pandered to the populists by excluding all people below a certain level of income from paying taxes, and the level is fairly high. All of those people now have nothing they perceive as real to lose when more aggressive redistribution schemes are pitched. Their ranks continue to grow until they become large enough to destroy the whole economy, because until the whole economy gets destroyed, the class warfarists claim those of us opposing them have always been wrong so we will always be wrong. And then the new dark ages start. Assuming we don't hand the planet over to the cockroaches in the process of starting the new dark age.
The Thunder Run has linked to this post in the - Web Reconnaissance for 01/25/2008 A short recon of what’s out there that might draw your attention, updated throughout the day...so check back often.
Honestly, I see you spamming this comment all over the place on my favorite sites. It's annoying, and I've never clicked on the link after the first time I checked out your site (long, long ago). Don't you have anything to actually, you know, contribute here? You can't just leech off of other people's work forever.
The whole thing makes me nauseous. There is no fiscally responsible political party any more. A recession hasn't even started and we're rushing off to pile more debt on our children in an effort to outlaw economic downturns.
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